Council members peppered Torres’ staff with questions about a proposal that would increase Paterson’s total debt by more than 35 percent.

Council President Julio Tavarez warned that the cash-strapped city government could ill-afford to risk taking on the extra debt, especially under a plan that would not lock in interest rates. Councilwoman Ruby Cotton predicted that the repairs would cost more than officials expect and that fewer roads would be fixed than promised. Councilman Anthony Davis complained that too few of the roads on the list were located in the 1st Ward, which he represents. And Councilman Andre Sayegh said he thought the city would be better off spending the money on law enforcement.

Still, the first reading of the ordinance was passed by a 7-2 margin, with Tavarez and Sayegh casting the only dissenting votes. Officials scheduled a public hearing and final vote on the plan for August 19. But between now and then, the city must first get approval from the New Jersey Local Finance Board.

Torres unveiled his ambitious pothole repair plan back in May, on the day after he won election. His administration plans to pay off the debt with money that the city normally uses for its annual street paving program. Supporters of the initiative say the poor condition of city streets is one of Paterson’s worst quality of life problems. They argue that the investment in the roads will spur growth in the city.
Torres’ financial team plans to borrow $35 million to pay for the street resurfacing and to use another $1.75 million for the down payment.

Under the plan, Paterson would end up paying almost $12 million in interest on debt that would not be paid off until the year 2030. The city’s financial advisor, Neil Grossman, said the plan calls for Paterson to borrow the money using short-term debt for the first three years and to convert that to long-term bonds afterwards. He said that move would allow Paterson to delay the major payments on the potholes until after the city clears some of its impending large payments, like the $16.4 million due next fiscal year and $14.4 million due in fiscal 2017.

The city would begin making substantial payments on the pothole debt in 2019, when $1.96 million would be due, according to municipal documents. The bulk of the money – more than $33 million - would be paid off between 2022 and 2028, according to city financial reports. Those projections are based on long-term interest rates being 4.5 percent, the city’s finance team said.

Tavarez said he was concerned that changes in the financial markets would drive up the city’s debt costs. But Grossman said that even if interest rates jumped to six-percent, that would only increase Paterson’s annual debt on the pothole repairs by $200,000 to $300,000.
“There’s just way too much risk involved in this,” said Tavarez.